When I first heard about the soaring debt levels of individuals in 2008, I recalled feeling overwhelmed with my own debt after graduating from university. I wondered how I was ever going to “crawl out from under” because between a student and car loan and a low salary, it looked like this would never happen. Luckily for me, I became a CPA and with that degree, I was able to move to a tax-free income jurisdiction. By living a frugal lifestyle I had my debt paid off within two years, and, I never looked back.
Most people don’t have the opportunity to make a breakaway to tax-free paradise. But, I want to point out that along with that opportunity, I consciously chose less expensive items whenever I made purchase. I lived in a house without air conditioning in order to pay less rent, I rarely went out for dinner and I entertained at home. I made do with the clothes I owned even though I longed for more. These are some of the more realistic ways to pay down the debt that burdens and causes burnout.
There is no doubt that getting (and staying) out of debt requires a change in behavior. But I think the first thing that has to happen is a change in mindset around the acceptability of debt.
Growing up, my family shunned debt. We made do what we had and were taught to save our money for tomorrow or for that precious item we wanted. My parents instilled a money value that strongly supported the idea that the absence of cash meant no spending. I was raised in a house with one bathroom and one phone for the seven people that lived together. This was a good way to keep mortgage payments and utility bills low.
When I learned of the high debt levels people carry today I believed our culture had drastically changed. Many retailers offer “buy now, pay later” arrangements, and credit card companies promote taking on more credit (or debt) in ever increasingly creative ways, I was sure that most people think we all deserve the American Dream today. We should not have to wait. Immediate gratification is now a reality for most. But after lots of research, I realize that this has been happening for a long time.
Formal credit began in the 1920’s. The automobile installment finance company [GMAC] was created in 1919, a successful example of installment selling in a major industry. Advertisements from that time we not unlike much of what we see today, with taglines of “buy now, pay later” and “why pay cash.” Some have likened the period to the current day on many fronts. It was a time of technological innovation (cars, radios, mass production), financial innovation (installment buying), and employer productivity. The benefits of productivity were hoarded by corporations and the wealthy which created a disparity of wealth similar to what we witness in the world today.
The notion I held that being in debt had always been looked down upon by the American public was wrong. Debt is actually a necessity for most people. In the days when rural folk had their accounts at the country store the arrival and approval of credit meant that you believed in the economy, that you were important and it was only the inability to make payments that named you “good for nothing.”
My conclusion is that debt must be a part of most peoples’ lives. Debt is neither inherently good nor bad. What is good or bad are the circumstances surrounding the utilization of credit.
However, utilization of debt can easily turn sour if one should encounter unfortunate circumstances, say, for example, the loss of a job. Payments once manageable become formidable. Perhaps a rise in interest rates creates payment demands beyond ones’ means. Maybe medical bills arise, throwing your best financial plan out the window. The best way to avoid these situations is to ensure you have a nest egg that covers debt payments should plans go sideways. While not a new concept, perhaps a forgotten one.
I believe a healthy approach to recovering from debt burnout involves three steps:
Assess your debt tolerance and your current debt load. If you feel comfortable carrying debt on high rate credit cards you need to revisit this. Due to interest and late payment charges, this type of debt can result in you effectively paying twice as much for items that you thought you got for a deal. You may want to talk to a credit counselor if you carry expensive debt and do not see a way out. You may have damaged your credit rating and need to connect with someone to help you repair it. CreditRepair is one of the most technologically driven credit repair services, with a sleek user-interface that helps you track your credit repair more easily. It also has a great mobile platform that also helps you track your progress.
Examine your spending behaviors honestly. Perhaps you need to change behavior to eliminate unnecessary indulgences. Examine which spending habits and events led you to an unhealthy place, then make appropriate changes.
Create a concrete plan to pay down your debt. Every little bit helps, so don’t bypass even small opportunities to reduce your debt. Cut back your cable choices, reduce your phone plan, eat beans more often and more expensive meat less often. Make cutbacks wherever you can. Remember, wealthy people often got there by being frugal. Again, a credit counselor can help you with this.
In my experience, the best way to handle debt is to seek to reduce and repay debt as fast as possible to ensure that living today is not stealing from tomorrow.